The Construction Industry Scheme (CIS) explained

CIS is the reason a builder's payment to you is often 20% short. This guide explains who it applies to, how the deduction is worked out, what you must file and how to get the money back, using GOV.UK rules checked on 12 October 2026 and 2026/27 tax figures.

What are the CIS rules in short?

The Construction Industry Scheme is an HMRC scheme for building work. When a contractor pays a subcontractor for construction work, the contractor usually takes a slice of the labour cost and sends it to HMRC. GOV.UK says these deductions "count as advance payments towards your tax and National Insurance bill". So CIS is not an extra tax. It is tax collected early.

The key points:

• Contractors must register before they take on their first subcontractor.
• Subcontractors do not have to register, but the deduction jumps from 20% to 30% if they do not.
• The deduction applies to labour only. Materials, VAT, equipment hire and job fuel come off first.
• Contractors file a monthly return by the 19th and pay HMRC by the 22nd.
• Subcontractors get their deductions back by setting them against their tax bill.

Who does CIS apply to?

Contractors

You are a contractor if you pay subcontractors for construction work. That includes a builder who hires a self-employed plasterer, an electrical firm that brings in another spark for a big job, or a roofer who uses a labour-only gang. GOV.UK also counts a business that does not do construction itself but has spent more than £3 million on construction in the 12 months since its first payment. Many trade firms are both: they work for a main contractor and pay their own subcontractors. If that is you, you must register as both.

Subcontractors

You are a subcontractor if you do construction work for a contractor. You can be a sole trader, a partner or a limited company. Employees do not register for CIS, because their tax goes through PAYE. If you are unsure whether you are really self-employed, check your employment status on GOV.UK first.

What counts as construction work?

So plumbers, heating engineers and electricians doing installation work for a contractor are usually inside CIS, not just builders. A homeowner paying you directly is not a contractor, so domestic jobs have no CIS deduction.

The rules are the same in England, Scotland, Wales and Northern Ireland, and they also apply to businesses based outside the UK doing construction work here.

How does CIS work, step by step?

For subcontractors

1. Register with HMRC. The quickest way is online, using your Unique Taxpayer Reference (UTR). If you do not have a UTR yet, you can register for Self Assessment and pick the subcontractor option to do both at once. Our guide to CIS registration and gross payment status walks through it.
2. Give each contractor your details (legal name, trading name, UTR and National Insurance number or company number) so they can verify you with HMRC.
3. Invoice with labour and materials on separate lines. If materials are lumped in, the contractor may estimate them, and you could lose out. Our free invoice templates, including a CIS invoice, show the split and the deduction.
4. Keep every payment and deduction statement. The contractor must give you one within 14 days of the end of each tax month.
5. Claim the deductions back on your Self Assessment return (sole traders and partners) or through your payroll submissions (limited companies).

For contractors

1. Register as a contractor before you pay your first subcontractor.
2. Verify each new subcontractor with HMRC. HMRC tells you whether to deduct 20%, 30% or nothing.
3. Work out the deduction. Start with the gross invoice, take off VAT, materials the subcontractor paid for, equipment hired for the job, fuel used (except for travelling), consumables and the cost of making or prefabricating materials. Apply the rate to what is left.
4. Pay the subcontractor the net amount and give them a payment and deduction statement.
5. File the monthly CIS return by the 19th and pay the deductions to HMRC by the 22nd (or the 19th if paying by post).
6. Keep records for at least 3 years after the end of the tax year they relate to.

Should you apply for gross payment status?

Gross payment status means contractors pay you in full and you settle your tax yourself through Self Assessment. To qualify, a sole trader needs at least £30,000 of construction turnover in the last 12 months (excluding VAT and materials), a business bank account and a record of paying tax on time. It suits established subcontractors with steady work who can set money aside. If you tend to spend what lands in your account, the 20% deduction acts as forced savings.

If you are VAT registered, CIS usually goes hand in hand with the VAT domestic reverse charge, which changes how VAT appears on the same invoice. See our guide to domestic reverse charge VAT for construction.

What does CIS cost, and what are the deadlines?

Registering for CIS is free. The real costs are the cash flow hit for subcontractors and the penalties for contractors who file late.

CIS works on tax months, which run from the 6th of one month to the 5th of the next.

For returns more than 12 months late, GOV.UK says an extra penalty of up to £3,000, or 100% of the deductions on the return if higher, may apply. Not being able to show your CIS records when HMRC asks can also cost up to £3,000.

Worked example: a self-employed plasterer in 2026/27

Sam is a sole trader plasterer, registered for CIS at 20%, and not VAT registered. Sam sends a main contractor this invoice:

If Sam had not registered, the deduction would be 30% (£600) and Sam would be paid £1,900. With gross payment status, Sam would get the full £2,500.

Over a whole year

Across 2026/27, Sam bills £30,000 of labour and £6,000 of materials. Contractors deduct 20% of the labour: £6,000. Sam's costs (materials, van, tools, phone) come to £12,000, so taxable profit is £24,000.

• Income tax (England, Wales or Northern Ireland): (£24,000 minus the £12,570 Personal Allowance) × 20% = £2,286
• Class 4 National Insurance: (£24,000 minus £12,570) × 6% = £685.80
• Total tax and National Insurance due: £2,971.80
• CIS already deducted: £6,000
• Refund due to Sam: £3,028.20

This is why so many subcontractors are owed money. CIS takes 20% of labour, but your real tax rate on profit is often lower once your expenses and Personal Allowance are counted. You only get the refund once you file your Self Assessment return, so file early (from 6 April 2027 for this tax year) rather than waiting for the 31 January deadline. In Scotland, income tax bands differ, so the refund would be slightly different.

What are the most common CIS mistakes?

• Not registering as a subcontractor. It costs you an extra 10% of labour in cash flow until you claim it back.
• Not splitting labour and materials on invoices. The contractor may estimate materials, or deduct 20% from the whole invoice. Always itemise and keep your receipts.
• Charging CIS on VAT. VAT never goes into the CIS calculation.
• Losing payment and deduction statements. You need them to claim your deductions. Check each one matches what you were paid.
• Forgetting nil returns. From 6 April 2026, contractors who pay nobody in a month must file a nil return or tell HMRC in advance.
• Treating an employee as a subcontractor. If someone works like an employee, CIS is the wrong route and PAYE applies.
• Waiting until January to claim a refund. Money HMRC owes you is not earning anything for you.
• Using your Corporation Tax return to offset deductions. GOV.UK says limited companies must not do this. Use your payroll submissions instead.

What software helps with CIS?

For subcontractors, the job is simple: invoices that split labour and materials, and a record of every deduction so the Self Assessment figure is right. Any decent quoting and invoicing app does the first part. Our free CIS invoice template is fine if you only send a few invoices a month.

For contractors, CIS returns are where software saves real time. Xero's UK pricing page (checked 12 October 2026) lists subcontractor CIS calculations and reports on every plan, from £18 a month ex VAT, with contractor CIS return filing as a £5 a month add-on. We compare Xero, QuickBooks, Sage and FreeAgent for trades in our guide to accounting software for tradesmen.

If you run a building firm, pair your accounts package with job management software that tracks labour, materials and subcontractor costs per job. Our best software for builders page compares the options, including tools with supplier invoice matching and purchase orders.